For the first time since the market’s correction occurred, more than 40% of individual investors describe their short-term outlook for stocks as being “neutral,” according to the latest AAII Sentiment Survey. Pessimism fell further, while optimism edged up slightly.
Bullish sentiment, expectations that stock prices will rise over the next six months, rose 0.7 percentage points to 34.8%. Even with the modest increase, optimism remains below its historical average of 39.0% for a record 33rd consecutive week.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 2.4 percentage points to 41.2%. Neutral sentiment was last higher on August 6, 2015 (44.0%). The increase keeps neutral sentiment above its historical average of 31.0% for a sixth consecutive week and the 40th week this year.
Bearish sentiment, expectations that stock prices will fall over the next six months, declined 3.1 percentage points to 24.0%. The historical average is 30.0%.
Neutral sentiment is back to an unusually high level. (Readings above 39.6% are more than one standard deviation above the historical mean.) Such readings have previously been correlated with above-median returns for the S&P 500. (There is no guarantee that history will repeat, however.)
Even though there is optimism on the part of some individual investors that a bottom in the market has been set, sentiment overall remains mixed. Some AAII members bought on the dips while others increased their cash positions. Impacting AAII members’ six-month outlook for stocks are global and international events (particularly China and global economic weakness), U.S. monetary policy, technical factors (seasonal trends, the recent correction or the chance of further price declines occurring), U.S. politics and the pace of U.S. economic growth.
This week’s AAII Sentiment Survey results:
- Bullish: 34.8%, up 0.7 percentage points
- Neutral: 41.2%, up 2.4 percentage points
- Bearish: 24.0%, down 3.1 percentage points
- Bullish: 39.0%
- Neutral: 31.0%
- Bearish: 30.0%
The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.